Tuesday, October 18, 2011

Secondary/agency liability claims against Postal Service fail

RPost Holdings, Inc. v. Trustifi Corp., 2011 WL 4802372 (C.D. Cal.)

RPost provides an email service allowing senders to “electronically sign, encrypt, contract, record, and diagnose message transmission metadata, prove the contents of an email message, and authenticate message metadata to reconstruct a validated original email message with all attachments.” Its proof of delivery product is “Registered Email.” (The opinion contained the ® symbol, but all I saw in TESS was a July 2011 application from someone who didn’t, on my admittedly casual inspection, appear to be the plaintiff.)

Anyway, RPost sued for violation of the Lanham Act and California’s FAL/UCL by defendants Trustifi, Authentidate, and the United States Postal Service. Trustifi sells an email authenticaiton service called Trustifi Postmarked Email, which it advertises allows users to prove when emails were sent, delivered, and received, such that it can be used to replace USPS Certified Mail and other similar services offered by private couriers. RPost, however, alleged that Trustifi can’t prove that an email was delivered to or received by the intended recipient. In a related patent infirngement suit, Trustifi asserted that its service only proves that a sender sent an email, not that a recipient received or read it. RPost further alleged that USPS authorized Authentidate to provide USPS’s Electronic Postmark (EPM), which provides proof of when an email was sent. Trustifi licenses EPM from Authentidate. Thus, RPost alleged, when Trustifi made its false statements, it was acting as the agent of the other two defendants in a “formal strategic alliance” in which USPS designated Trustifi as an authorized EPM provider. RPost also alleged that Trustifi had apparent authority to make false statements about its email verification services.

USPS argued that the Lanham Act claim should be dismissed because the agency allegations had to be pleaded with particularity and weren’t, and that the government can’t be held liable based on apparent authority. Several district courts have held that Lanham Act false advertising claims must be pleaded with particularity (and not Lanham Act trademark claims? Why the discrimination? Either both sound in fraud, or neither do, see the substantively identical operative language). Anyway, the Ninth Circuit has applied Rule 9(b) to other kinds of false advertising claims, so the court decided to do so here.

RPost didn’t allege false representations by USPS, merely that Trustifi was an agent because it had formed a strategic alliance with USPS. This was based on the fact that Trustifi advertised USPS’s EPM product on its website. But alleging agency was a legal conclusion, and RPost didn’t allege facts to support its false advertising agency theory or plead this theory with particularity.

RPost argued that Rule 9 didn’t apply to agency allegations, but Rule 9 is designed to give fair notice of fraud-based claims to a defendant. “Regardless of what theory Plaintiff uses to implicate USPS, because Rule 9(b) applies to the underlying claim, Plaintiff must plead all facts necessary to support the claim with particularity, including facts explaining USPS's role as a principal in the deception.” The strategic alliance allegation was insufficent; RPost didn’t explain what being an authorized EPM provider had to do with Trustifi's false statements, nor did it allege any of the elements of an agency relationship. The claim against USPS was dismissed without prejudice.

Apparent authority was no help either. Even assuming the theory worked, which was “doubtful,” RPost didn’t allege any facts in support: it didn’t explain how USPS caused third parites to believe that USPS authorized Trustifi to engage in false and misleading statements. (Shouldn’t that be “authorized Trustifi to make statements touting its products?)

The California law claims also failed, not just because of the 9(b) issues. It was unclear whehter RPost was required to exhaust administrative remedies under the FTCAin order to bring its FAL and UCL claims. A party may not maintain a tort claim under the FTCA until it first presents the claim to the appropriate federal agency. The court wasn’t convinced that UCL and FAL claims were tort claims. Some cases distinguish UCL claims from torts, while others call them statutory torts. The court didn’t resolve the issue, because other issues were fatal.

In Emery v. Visa Int'l Serv. Ass'n, 116 Cal. Rptr. 2d 25 (App. 2002), the court held that “[a] defendant's liability must be based on his personal participation in the unlawful practices and unbridled control over the practices that are found to violate sections 17200 or 17500” and that "there can be no civil liability for unfair practices" where the defendant "played no part in preparing or sending any 'statement' that might be construed as untrue or misleading under the unfair business practices statutes." It was Trustifi who made the allegedly false statements, not USPS. Thus, there was no vicarious liability under California law.

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